Zerodha delivery margin is the amount blocked by the Zerodha (usually 20% of the value of stocks sold) when you sell stocks from your Demat account.
As per SEBI’s new peak margin norms in 2021, when you sell your securities from holding, you will receive only 80% of the total sale on the same day and 20% on the next trading day. The purpose is to prevent the risk of newbie traders from high losses.
The broker (Zerodha) debits the shares from your Demat and sends them to the Clearing Corporation(CC) on the same trading day. These stocks sent to CC can then be considered as margins, both for upfront and peak margin requirements.
Since the actual settlement of shares requires T+2 days, only 80% amount is credited on the trading day to avoid any speculative trading.
How Delivery Margin in Zerodha Works
Assume, you sold stocks worth Rs 1,00,000 on Monday. You’ll receive 80% of the order amount in your trading account which is Rs 80,000 on the same day that you can utilize it for further trades.
The remaining 20% is blocked (Rs. 20,000), which is considered the delivery margin. The delivery margin amount of Rs. 20,000 will be credited to your account on the next trading day (Tuesday).
How to check Delivery Margin in Zerodha Kite
You can check out the 20% blocked amount in the delivery margin section on the fund’s page.
80% of credit from selling your holdings will be available for new trades. But you can’t buy the same shares that you have sold as that leads to a peak margin penalty. We’ll discuss the peak margin penalty later in this article.
Important Terms to Know
#1. Peak Margin
Peak margin is the minimum margin your broker must collect from you before placing any intraday or delivery order.
Peak Margin vs Delivery Margin
Peak margin is different from delivery margin as peak margin is the upfront value your broker collects from you before executing a trade. Whereas, the delivery margin is the amount held by the broker after selling the holdings.
#2. Peak Margin Penalty in Zerodha
The peak margin penalty is charged when you sell your holdings and use the credited amount for new trades along with buying back the same shares on the same day.
Suppose you have no funds in your account and you have sold 100 Reliance shares at Rs 2000 per share.
Your order amount would be Rs. 2,00,000 from which Rs. 1,60,000 would be credited to your account on the same day. The rest of the amount would be transferred to your account on the next trading day (delivery margin).
Now you have Rs. 1,60,000 funds available for other trades. Assume that you bought 1 lot of Nifty futures and also bought back Reliance shares worth Rs. 1,60,000 that you sold earlier on the same trading day.
Now if you buy back 80% of the stocks sold (because you have 80% amount), your broker can transfer only 20 Reliance shares worth Rs 40,000 to the CC.
This means that when you traded for 1 lot of Nifty futures, you were short of Rs 1,20,000 –
Rs. 1,60,000 – Rs. 40,000 (Credited amount – Amount worth shares actually transferred to CC).
So now you can potentially get a peak margin penalty on the shortfall of Rs. 1,20,000 for the Nifty futures trade.
So, if you exit your holdings and plan to buy back the sold holdings on the same day, then avoid other trades with the proceeds of the holdings sold.
And if you had used that 80% credited amount to take another intraday trade, don’t buy back the same shares on the same day to avoid penalty charges.
Alternatively, you can keep additional funds deposited in your trading account to avoid the shortfall.
#3. What is Zerodha Nudge
As you know, you receive 80% of funds against selling stocks on the trading day only.
Now, if you try to use this 80 % amount to buy back the same stocks you sold that day only, you receive a warning message from Zerodha regarding the penalty.
This warning message is called Zerodha Nudge.
#4. Interest Rate on Zerodha Margin
There are no interest charges on the Delivery margin. But if you use margin leverage from Zerodha, you have to pay an interest of 18% per year or 0.05% per day on the outstanding amount.
According to the SEBI, a trader has to keep 50% cash and 50% collateral (stock holdings) in the trading account to utilize the margin for trades. In case your cash deposits get lower than 50% and you cover up the shortfall with collateral holdings, you have to pay interest as delayed payment charges on the shortfall amount.
#5. Negative Balance in Margin
Whenever you see a negative margin in your fund’s section, that means you have sold some stocks whose amount is pending to be credited in your account or it has already been credited in your account.
For example, in the snapshot below, you have a negative margin amount that is Rs. -4078.40.
Suppose, I have sold stocks worth Rs. 5098.
I received 80% of the amount which is Rs. 4078.40 and the rest of the 20% is kept as a delivery margin that is worth Rs. 1019.60.
You can also verify if you have received the amount or not by reducing the opening balance from available cash. In the above example, if you subtract the opening balance which is Rs. 7.80 from the available cash of Rs. 4086.20, you’ll get the exact amount of 4078.40 which is shown under the Used margin section.
I have created a section on Zerodha Demat account. You can check to get a better understanding